Budget 2021: Experts outline state pension changes
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In September this year, the Government confirmed plans to suspend its triple lock pledge on state pensions for one year in a bid to save the Treasury money. According to figures released as part of this week’s Budget, the Treasury will save a staggering £30.5billion from the decision. A key manifesto promise in the last election, the triple lock is an official guarantee that the state pension will increase by the highest of inflation, average earnings growth, or 2.5 percent.
Due to furlough artificially inflating wages, the country’s average earnings soared to eight percent which resulted in the Government opting to scrap the triple lock temporarily.
Currently, the new state pension is set to be raised by 3.1 percent to keep in line with the rate of inflation.
Recent analysis from former pensions minister Steve Webb has revealed that pensioners will see an average reduction of £2,600 over the next five years from their retirement pots due to the Government’s decision.
Speaking to The Times, Mr Webb explained how pensioners will be impacted by the temporary suspension of the triple lock.
The partner at Lane, Clark & Peacock (LCP) said: “The decision to break the triple lock will have a huge impact on pensioners even though it is for one year only.
“Pensioners will face a particular squeeze next year, as rapidly rising bills for fuel, food and council tax will quickly more than wipe out the planned state pension rise, which will leave them facing a spending squeeze for years to come.”
The triple lock suspension has come at the same time as a four percent rise in inflation and a drop in interest rates, as well as increasingly expensive living costs.
According to a survey carried out by LV=, 20 percent of people aged over 65 years old are anxious that their savings are being slowly eroded by low interest rates and increasing inflation. This equates to around 2.3million Britons.
Clive Bolton, the Managing Director of Savings and Retirement at LV=, outlined the issues which arise for pensioners as a result of this, who remain an economically vulnerable group.
Mr Bolton said: “Rising inflation and poor returns from cash present a dilemma for people in retirement.
“They might have to draw down their savings more quickly than they would want or switch some of their savings into higher-risk assets.
“These can offer the prospect of keeping pace with inflation but can be hit hard if investment markets fall.”
Steven Cameron, Pensions Director at Aegon, is one of many experts warning the current state pension rate may not be enough to support people as inflation rises.
Mr Cameron explained: “State pensioners will be disappointed that despite the Chancellor’s Budget speech emphasising an expected rise in inflation.
“There is no sign their increase next April will be above the 3.1 percent inflation increase based on September’s inflation outcome.
“In its original form, the triple lock formula would have produced a massive 8.3 percent increase because of furlough induced distortions to national average earnings.
“This prompted the government to announce it would move to a double lock for one year only of the higher of inflation or 2.5 percent.
“While 8.3 percent would have been extremely generous, 3.1 percent may look harsh against the broad acceptance we’ll see sharp rises in the cost of living as well as in heating costs which disproportionately affect pensioners.
“For many, the state pension is the bedrock of their retirement income and come next April, a 3.1 percent increase may leave many feeling left out in the cold.”
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